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Why the Price to Earnings Ratio can be Misleading for Investors

The Price to Earnings Ratio (P/E) is one of the “go to” metrics for most investors, brokers, and funds when in the very early stages of vetting an investment idea. It gives an indication of how much the market is willing to pay for a stock in terms of its earnings. It essentially tells you “How many years will it take for me to get my investment back from earnings?”

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Finding Turnaround Stories in the Search for Value

Here at Farnam we are always on the lookout for companies that represent value from a fundamental perspective. While companies like this can come in many forms, often the best place to start looking is with the classic “turnaround” story.

We’re all familiar with the idea; a company that has been beaten down by the market makes a strategic decision to implement change and attempt to find new avenues for growth. It often comes in the form of divesting non-core assets or making an acquisition of another business.

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What makes IPO’s Perform Poorly?

Recently on the blog we looked at the 2016 financial year IPOs that performed well and those that did not. When a new stock does well it is usually very easy to see the reasons why. Among other things, the reasons generally relate to a clear upward trajectory of earnings, a strong balance sheet, and minimal fluff from manegement. However, in amongst the prospectus, selective language, and colourful, upward trending graphs, it can often be more difficult to predict the losers before they happen. Using hindsight though, we can point to certain similarities that could help investors avoid these in the future.

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The Winners and Losers of FY2016 IPOs

With the end of the financial year approaching I decided to have a look back at all the new companies that listed on the ASX last year. By my count there were 111 new floats on the ASX so far this year (not including backdoor listings and including re-listings and demergers). So let’s have a quick look at some of the best and worst offerings and discuss potential strategies for the next financial year.

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The on-coming disruption from driverless cars

While reading Josh Durbin’s great blog post on the lithium boom we are currently experiencing, I began thinking about the on-coming disruption that will come from electric vehicles. There is no doubt that as electric vehicles become as cheap as their petrol-based counterparts, we will see a worldwide trend towards electric vehicles and clean energy in general. Obviously this will cause massive disruption for the oil industry and car-makers who can’t adapt with an electric product, but while doing research on the topic I came across a much bigger disruption coming in the near future; driverless cars.

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Should we bet on a Brexit?

I would like to preface this blog post with the disclaimer that, we do not consider ourselves macro investors, nor do we believe we can forecast exchange rates with any precision. Having made that statement, I thought it might be interesting to have a look at how different markets are viewing the likelihood of the British people deciding whether or not to leave the European Union on 23 June 2016.

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A Few Key Takeaways from the 2016 “Woodstock for Capitalists”

For over a decade, more than 30,000 people from around the world have descended into the small town of Omaha, Nebraska in the USA to listen to arguably the best investor of modern times, Warren Buffett.

Buffett, often referred to as the “Oracle of Omaha”, is the CEO and largest shareholder of Berkshire Hathaway, the largest investment company in the world. The Berkshire Hathaway AGM is held in April every year and has slowly become the “Woodstock for Capitalists”, as shareholders of Berkshire Hathaway are able to pick the brains of Buffett and his investment partner Charlie Munger for several hours.

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Ignoring the Fluctuations of the Market

In February, I had the idea to write about the market being in “bear” territory as the ASX 200 Accumulation Index had dropped 20% (to 4800 points) since its recent peak (very nearly 6000 points in April 2015). Even though it is an arbitrary number, this is generally considered a bear market. I even had this incredibly witty title “Bear Season Opens” and had planned to write about what previous bear markets looked like and how long they lasted.

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